Market Outlook for December (By Market Matters)

Shawn Hickman from Market Matters has provided the Market Outlook for December 2014. If you have a question, please ask in the comments at the bottom of the page.

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Shawn Hickman

Managing Director at MarketMatters.com.au

Shawn is a professional trader and investment adviser in equities and derivatives. In addition to being a Senior Adviser at Shaw Stockbroking, Shawn operates the online investment report "Market Matters" where he shares with subscribers his investment strategies and share trades as they are placed.


Credentials

- 26 years experience (started on the floor of the ASX in 1988)

- 10 years at Goldman Sachs JB Were where he was Director of Futures

- 5 years as a Director at Macquarie Bank


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3 December 2014

Analysis is updated Monthly


Last Friday’s massacre of oil stocks seemed to flow though to most other sectors of the Australian market with the noticeable exception of Iron Ore stocks, where some short covering is emerging. 

The oil slide clearly caught a number of people off guard locally, with some of our large oil stocks falling a massive 6-13% with price action that felt like a crash. 

When we consider what’s hit the ASX200 recently it’s not surprising that we are languishing 6.5% below 2014 highs while the Dow and German DAX are flirting with fresh all-time highs.


ASX Problems

1    Iron Ore falling around 30% in 5 months.
2    Crude Oil falling over 35% in 6 months.
3    Gold recently hitting fresh 4 year lows.
4    Large downgrades hitting some of our stocks, including Woolworths.


Our market is being held together by the banks which are nervous with the Murray inquiry looming in coming weeks. However, remember 10-year bonds are yielding only 3.04% and inflation expectations are pointing to lower interest rates for much longer, which should be very bullish for both equities and property in years ahead.

I still feel the local banks can rally hard after the Murray findings are announced, “sell on rumour, buy on fact”.


My Forecasts for 2014 and 2015

Other major indices are following the map perfectly, BUT the ASX200 is unfortunately trickier at present.

1    I still anticipate a classic Christmas rally into a major top; I now doubt whether the ASX200 can break much over 5450-5500. For me to be comfortable with this scenario, I do not want to see the market below 5300 for very long next week. Interestingly, last December we rallied 355 points from the 12th, but we fell 305 points in the first two weeks. 
2    I remain comfortable with my view of a 2000-2500 pullback in the DOW approximately 15%, creating another great buying opportunity. I am envisaging this pullback will take the ASX200 back towards the 5000 level. Ideally before this pullback occurs, the US Indices will rally another 3% and the German DAX about 5%.

I often say “The Australian market leads in big tops and bottoms” and the current price action locally adds to my comfort of the pending large correction for world equities.


Bullish

US Indices should trade another 3-4% higher, European Indices are still bullish targeting fresh 2014 highs, the Chinese Index looks set for strong gains, the Gold Sector still looks bullish, BHP is positive short term, targeting over $34, Seek (SEK) remains bullish, targeting $19.

Neutral

The ASX200 is not bullish on a short term basis until we see a false break below 5293.

Bearish

The US Indices are heading for a 15% correction in coming months, I remain bearish Woolworths (WOW) long term, targeting under $25, I remain bearish BHP longer term, Macquarie Group (MQG) is targeting $55, New Zealand’s Index looks to have commenced a 10% correction.

My Conclusion

Equities are in the process of making a significant top into Christmas, early 2015 and Gold should continue to rally.


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Q&A with Shawn

Last stock you bought personally?

Regis Resources Limited (RRL)

Top 3 stock picks right now

  1. GOLD - Gold has been an under performer during 2014 due to positive US economic growth and subsequent strong $US. I am now looking for a US$300-400/oz rally in Gold in the next 3-4 months.

    For traders that followed my short Gold and respective stocks call, it’s time to take profit and await a buy signal, or start accumulating slowly.

    I believe the ideal positions for the next few months will be cash and some gold stocks, but the absolute optimum level to implement this strategy has likely not yet been reached. A great way to emphasise the panic in our Gold sector, is the 19% decline since October, BUT the Gold price in $A has only fallen 7%.

    Let’s look at the respective gold stocks to consider purchasing levels:

    Regis Resources (RRL)
    Ideally, Regis can be accumulated between $1.10 and $1.30 targeting a 80% rally.

    Newcrest Mining (NCM)
    Ideally, buy under $6.90 targeting a 100% rally.
     

  2. CASH - I see no real short term upside in this market in many sectors as highlighted in my outlook. As a result I think cash is a safe place for a large portion of your current portfolio for the next quarter till stocks generate buy signals at appropriate levels.
     

  3. Bank of Queensland (BOQ) If you want a longer term investment this is where I would look. Technically, I remain bullish BOQ, targeting $13.50 area capturing a ~5% fully franked dividend, twice of the current cash rate.

    Bank of Queensland is arguably the fastest growing Australian bank on the lowest P/E ratio which I find very attractive. Fully Franked dividend currently 5.4%.

Last investment book you read?

I reread Market Wizards by Jack D. Schwager – the original.

What advice do you have for new investors?

Plan your trade / investment and follow your plan…..you are at your strongest before $$ are at risk.


Shawns' Outlook

 

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